Category: Trade

In Part 1, we examined the importance of international markets for cotton growers amid a significant decline in U.S. cotton processing capacity. Since 1995, U.S. cotton mill use has plummeted by 84%, reaching 1.85 M bales in the 2023 crop season—the lowest level in over a century. During this period, Brazil’s production surged, enabling it to surpass the U.S. in cotton exports. In this second part, we briefly analyze yield and production trends in both countries, exploring their potential impact on future exports.

After the World Trade Organization (WTO) Agreement on Textiles and Clothing (ATC) came into effect in 1995, U.S. cotton production averaged 17.1 million bales annually. For the 2024/25 crop season, the USDA estimates production at 14.5 million bales (Fig. 1), reflecting an improvement over the past two years. However, untimely rains have hindered optimal crop development in Texas, the largest cotton-producing state. In 2023, Brazil outpaced the U.S. in cotton production (Fig. 1), with USDA forecasting a harvest of 16.7 million bales for the 2024/25 crop season – nearly nine times the amount produced in 1995. This growth in Brazil is primarily due to land expansion and yield improvements.

Figure 1 – Cotton Production in the U.S. and Brazil: 1960 – 2024. 

Brazil’s cotton acreage has expanded by 71% since 1995. Most Brazilian cotton is grown as a double crop, following soybean harvest. Cotton competes for land with corn, allowing farmers to benefit from fiber-food diversification. This year, low corn prices prompted growers to shift more acreage to cotton, resulting in a 16.8% increase in planted area. 

Post-ATC, Brazil began outperforming the U.S. in cotton yield. Enhanced farming practices and the introduction of transgenic cotton seeds in the late 2000s significantly boosted productivity. Brazilian yield soared from 323.9 lbs./ac in 1995 to 1,705 lbs./ac in 2023 – a fivefold increase. In contrast, U.S. cotton yields have plateaued around 846.5 lbs./ac since 2004 (Fig. 2), a notable achievement considering the challenging weather conditions faced by U.S. producers.  

Figure 2 – U.S. and Brazil Cotton Yields. 

Brazil’s soil and climate favor cotton expansion, signaling a promising export future. However, the profitability of second-season corn often influences farmers’ decisions to plant cotton. Expanding cotton beyond traditional areas is limited by the need for specialized infrastructure, such as cotton gins and storage facilities. Moreover, cotton demands more sophisticated technology and a longer growing season than corn, adding climatic risk to production. Despite these challenges, Brazil has made notable progress. In 2023, the country achieved a milestone by exporting cotton to Egypt, showcasing the enhanced quality of its fiber. Additionally, a new export route through the port of Salvador, strategically closer to the key cotton region of western Bahia, was established to alleviate bottlenecks at Santos, Brazil’s main export hub.

Brazil is poised to contend for the top position in global cotton sales. Preliminary analysis indicates that cotton remains more profitable than corn in the country. Despite narrowing margins for Brazilian cotton producers, a modest increase in acreage is expected for the next cycle. Cotton prices on ICE Futures in New York have fallen by 20% since February, now trading around $0.70 per pound. Meanwhile, the dollar’s 12% appreciation against the Brazilian real has bolstered Brazil’s price competitiveness, mitigating the impact of falling cotton prices in the country. Although recent droughts in the U.S. have curtailed production, Brazil’s surging output has halted the effects on global prices. Monitoring Brazil’s cotton market provides valuable insights into global price trends and affects marketing strategies for Southern U.S. growers.

References. 

FAS/USDA/PSD. PSD Data Sets. Retrieved from: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home[Accessed September 18, 2024].

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Cali, Yuri, and Rachel Judd. “Shifting Winds: The Changing Landscape of Cotton Production and Exports in the U.S. and Brazil (Part 2).” Southern Ag Today 4(40.4). October 3, 2024. Permalink

In previous Southern Ag Today articles, we reported on the rising U.S. agricultural trade deficit as forecasted by the U.S. Department of Agriculture (USDA). Last month (August), the USDA released new forecasts for the fiscal year (FY) 2025, indicating an even larger deficit than FY 2024. According to the USDA, the U.S. will conclude this fiscal year with agricultural exports at $173.5 billion and imports at $204.0 billion, resulting in a negative trade balance of $30.5 billion. For FY 2025, the USDA forecasts agricultural exports at $169.5 billion and imports at $212.0 billion. If these projections hold true, the continued decrease in exports and increase in imports will cause the U.S. agricultural trade deficit to rise to a record $42.5 billion (Kenner et al., 2024). As mentioned in previous articles, this is not necessarily a concern because we import high-value agricultural and food products that are very different from the bulk commodities that dominate U.S. exports. For instance, U.S. imports of beer, wine, and spirits accounted for more than half of this deficit in recent years (Muhammad and Hossen, 2024b). That said, the continued decline in U.S. agricultural exports should be a concern.

The differences between the latest FY 2024 and FY 2025 forecasts are reported in Table 1. Soybeans account for the largest expected decline at $1.5 billion, a decrease of over 6%. Beef and veal exports are expected to be lower by $1 billion, nearly an 11% decline. Other noted declines include cotton (-$900 million, -17%), soybean meal (-$700 million, -10%), and sorghum (-$400 million, -27%). While there are projected declines for several major commodities, some sectors are projected to increase, albeit the projected increases are smaller by comparison.

The shift from historical trade surpluses presents both challenges and opportunities for U.S. agricultural policy, with an increased urgency to address declining export sales. To mitigate the impact of declining exports, particularly to China, U.S. policymakers must focus on diversifying export markets. Exports to China have declined by 30.9% between 2021 and 2023 (Muhammad and Hossen, 2024a), and they are projected to fall further to $24.0 billion in FY 2025 from $27.0 billion in FY 2024. There is an urgent need to seek new markets in regions such as Southeast Asia, Africa, and Latin America. Negotiating new trade agreements with these emerging markets could open opportunities for U.S. agricultural products. Additionally, providing export promotion assistance and investing in market research will be essential in identifying and capitalizing on opportunities in untapped markets.

Table 1. Difference in USDA exports forecasts: FY 2024 versus FY 2025

For more information:

Kenner, Bart, Hui Jiang, James Kaufman, and Angelica Williams. (2024). Outlook for U.S. Agricultural Trade: August 2024. Report AES-129. U.S. Department of Agriculture. https://www.ers.usda.gov/publications/pub-details/?pubid=109831

Muhammad, Andrew, and Md Deluair Hossen. (2024a). “Understanding the Growing U.S. Agricultural Trade Deficit: The Fall in Exports.” Southern Ag Today 4(26.4). June 27.

Muhammad, Andrew, and Md Deluair Hossen. (2024b). “Understanding the Growing U.S. Agricultural Trade Deficit (Part 2): What’s Happening with Imports?” Southern Ag Today 4(30.4). July 25.

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Hossen, Md Deluair, and Andrew Muhammad. “USDA Projects a Widening Trade Deficit for Fiscal Year 2025.” Southern Ag Today 4(38.4). September 19, 2024. Permalink

The United States has led world cotton exports since the 1980s. After the 1990s, the U.S. shipped most of its cotton production to foreign markets. As domestic processing capacity shrank,  U.S. cotton farmers became more dependent on international markets. Brazil expanded cotton production and exports in this context, challenging the U.S. leadership in cotton. We briefly contrast the U.S. and Brazilian cotton markets in two parts: the first highlights trade and the second production.  

The importance of international markets for U.S. cotton farmers has grown in recent decades. In 1995, the World Trade Organization (WTO) implemented the Agreement on Textiles and Clothing (ATC). The ATC gradually phased out quotas on textile imports over ten years. Since the ATC’s implementation, U.S. exports jumped from 37% to 72% of total supply in 2023, underscoring the U.S.’s competitiveness overseas. Brazil exhibited a similar trajectory, reaching 66% of its total supply exported in 2023. Total supply includes beginning stocks, production, and imports. Figure 1 illustrates the upward trend of export relevance to cotton farmers. 

Figure 1 – Cotton Exports as a Percentage of Total Supply. 

Brazil surpassed U.S. cotton exports in 2023. The U.S. exported 11.75 M bales in the 2023 crop season, and Brazil shipped 12.1 M bales, leading cotton exports for the first time (USDA, 2024). Figure 2 shows the growth of Brazilian exports while U.S. exports stagnated. Factors such as Asian demand, favorable exchange rates, government support, and competitive prices fueled Brazilian exports. The U.S.-China trade war (2018-19) further shifted trade dynamics. 

Figure 2 – U.S. and Brazil Cotton Exports. 

Before the U.S.-China trade war, China ranked third among the largest importers; today, it tops the list. China now serves as the primary destination for U.S. and Brazilian cotton. According to U.N. Comtrade (2024), Brazil’s share of the Chinese market surged from 9% in 2014 to 37% in 2023, matching the U.S.^[1] From 2022 to 2023, Brazilian cotton shipped to China jumped 49%, while U.S. exports dropped 33%. However, in the first half of 2024, the U.S. increased its exports to the Asian country by 79% compared to the same period last year. 

The continued growth of Brazil’s cotton exports will likely challenge U.S. dominance further. Understanding the surge in Brazilian supply is particularly relevant for Southern growers, which are facing prices below $0.70 per pound, less than half of the May 2022 peak. Also, modest economic growth and high interest rates have constrained consumer spending worldwide, depressing the global demand for cotton. In part 2, we will review yield and production trends and how they may shape the export outlook. 

References. 

FAS/USDA/PSD. PSD Data Sets. Retrieved from: https://apps.fas.usda.gov/psdonline/app/index.html#/app/home[Accessed August 22, 2024].

U.N. Comtrade. Trade Data. Retrieved from: https://comtradeplus.un.org/ [Accessed August 29, 2024].

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^[1]. Market share is calculated from cotton quantity. The analysis with the U.S. Comtrade Database used HS 5201 cotton (not carded or combed). 

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Cali, Yuri, and Rachel Judd. “Shifting Winds: The Changing Landscape of Cotton Production and Exports in the U.S. and Brazil (Part 1).” Southern Ag Today 4(36.4). September 5, 2024. Permalink

Recent years have seen several high-profile outbreaks of transboundary animal disease. On average, approximately 0.01% of the world’s cattle population, 0.05% of the world’s swine population, and 0.03% of the world’s poultry population die each year due to global animal disease outbreaks.

These disruptions cause losses not only in the animal production industry but also in other related industries, such as the feed grain markets. One such upstream industry which is important for Southern U.S. agriculture is the international soybean market. Soybeans are the predominant source of protein in animal feed, and over 95% of global soybean meal production is destined for animal feeding (about 76% of total crush by weight) (Economic Research Service, 2024). Between 2005 to 2020, the U.S. was the second largest exporter of soybeans in the world behind Brazil. U.S. exports account for more than 30% of global soybean trade. The top five destination markets for U.S. soybeans have historically been China, Mexico, Japan, Indonesia, and Germany (Figure 1).

Figure 1: U.S. Soybean Exports, by Destination Market

In a recent study, we use a statistical model to examine the losses to global soybean trade due to animal disease (Lwin, Schaefer and Hagerman, 2024). A significant amount of animal deaths within a short period represents a demand-side shock in the feed market, where soymeal is a primary protein source. Our analysis suggests that—on average—more than $96 million in export potential is lost annually due to animal disease outbreaks (Figure 2).

Figure 2: Annual losses in U.S. soybean export potential due to animal diseases 

These results should be of interest to policymakers. Historically, animal health policies have focused primarily on compensation to producers of affected livestock, which may include indemnity for animals that die or are depopulated for disease control. Few policies address the risk animal diseases pose to upstream suppliers. Crop insurance programs, if available, may protect grain producers against price declines. However, crop insurance is unlikely to address additional costs of storage or quality loss for grain that must be stored for longer periods of time. Policy efforts to enhance supply chain resilience should consider the ripple effects of animal disease-related disruptions on related industries. 

References 

Economic Research Service, USDA. 2024. “International Baseline Projections.” Accessed: 2024-02-02. 

Lwin, Wuit Yi, K. Aleks Schaefer, and Amy D. Hagerman. 2024. “Animal Disease Outbreaks and Upstream Soybean Trade.” Food Policy, 127: 102685.

In a previous article titled Challenges for U.S. Fruits and Vegetables we discussed some of the challenges that the U.S. fruit and vegetable industry faces. Labor cost and availability is identified as the main challenge that the U.S. fruits and vegetable industry faces. Dependance on foreign-born farm labor is around 70 percent. Therefore, in order to address the shortage of farm labor, the H-2A Temporary Agricultural Program—often called the H-2A visa program— was created in 1986.

The H-2A provides a legal means to bring foreign-born workers to the United States to perform seasonal farm labor on a temporary basis, for a period of up to 10 months. Employers in the H-2A program must demonstrate, and the U.S. Department of Labor must certify, that efforts to recruit U.S. workers were not successful. Employers must also pay a State-specific minimum wage rate, which may not be lower than the average wage rate for crop and livestock workers surveyed in the Farm Labor Survey (FLS) in that region in the prior year, known as the Adverse Effect Wage Rate (AEWR). Figure 1 shows the AEWR by state and it is obvious that those rates are much higher than the federal minimum wage as well as any state minimum wage. In addition, H-2A employers must provide transportation, housing, food, insurance, and visa application fees, among other expenses that could add between 35% to 40% of the AEWR rate, i.e., $21.77 in Texas, $20.68 in Florida and $27.65 in California. Industry experts shared that agricultural wage rates in Mexico averages around $20.59 in Colima and $23.53 in Sonora per day, or $2.57 and $2.94 per hour for an 8-hour workday, respectively. Finally, as the labor shortage keeps getting worse, producers could be getting into wage bidding wars to secure farm labor during peak season, increasing their labor cost even more.

Even though labor cost takes a major toll on the fruits and vegetable industry, it is left with little to no options. Not only is the share of the labor cost higher than other agricultural industries, but also labor is scarce. According to ERS (2023), one of the clearest indicators of the scarcity of farm labor is the fact that the number of H-2A positions requested and approved has increased more than sevenfold in the past 17 years, from just over 48,000 positions certified in fiscal 2005 to around 371,000 in fiscal year 2022. The average duration of an H-2A certification in fiscal 2022 was 5.65 months, implying that the 371,000 positions certified represented around 175,000 full-year equivalents. A certified job does not necessarily result in the issuance of a visa; in fact, in recent years only about 80 percent of jobs certified as H-2A have resulted in visas. Around 300,000 visas were issued in fiscal 2022 by the Department of State.

References

Economic Research Service (ERS). “Farm Labor.” Accessed February 2024. https://www.ers.usda.gov/topics/farm-economy/farm-labor/. Updated August 7, 2023.

Foreign Agricultural Service (FAS). Global Agricultural Trade System (GATS). Online database. https://apps.fas.usda.gov/gats/default.aspx. Online public database accessed February 2024.

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Ribera, Luis, and Landyn Young. “Challenges for U.S. Fruits and Vegetables (Part 2).” Southern Ag Today 4(32.4). August 8, 2024. Permalink